Inequality is an ever-widening chasm as the strong get stronger and the weak go out of business. Real Vision’s Ash Bennington and Ed Harrison talked about the gap between large and tech-based companies on the upside of the economic recovery versus the small and brick-and-mortar businesses on the downside during today’s Daily Briefing.
They said that the gap between winners and losers is forming what some are calling a “K”-shaped recovery. With claims that cities are “dead,” one interesting sector on the upside they discussed is homebuilders, whose businesses are booming.
Existing home sales are through the roof, with distant suburbs riding in popularity as many flee populated urban centers, and homebuilder ETFs are hitting record highs: the iShares U.S. Home Construction ETF (ITB) is up 150% since March and the SPDR Homebuilders ETF (XHB) is up 125% since March.
Bennington said this may be more short-term momentum than a permanent change, while Harrison said he thinks maybe the hit homebuilders took in February was an over-correction and now people are seeing homebuilders as part of the upside of the “K”-shaped recovery. Either way, the pair agreed that this is a big positive for the economy.
Bennington and Harrison also talked Tesla (TSLA) during the interview, saying that the 400% gain in shares over the past year is “not rational under any circumstances.” Harrison said the prospects for Tesla haven’t changed that much in this last year and that this is a mania in which momentum and psychology are taking over, which may end very badly for some investors.
He said he is expecting an eventual meltdown – however, Tesla may ultimately follow in the footsteps of Amazon (AMZN). “If it is a real company in the same way that Amazon was, it will come back and you’ll make your money, but there will be pain in the interim,” he said. “Who will stick it out? Who will be over margins? We’ll find out.”
Although Harrison said that Tesla is “fully priced and more given what its prospects are,” Bennington and Harrison agreed that there is an underlying consumer demand for their product – and so, the problem isn’t necessarily the company, it is the price.
Wrapping up the discussion, Bennington and Harrison turned their attention to money market fund fee waivers, which is essentially a move to keep funds from going negative. With the 3-month Treasury bill yielding 9 basis points right now, this is a real challenge for banks to maintain the integrity of these markets and keep them viable, Harrison said.
“This is where the rubber meets the road in terms of QE. By keeping rates low, the Fed is pricing people out of one market and forcing them into another and this is a perfect example of that,” Harrison said. “The Fed is getting what it wants: it is forcing people into higher-risk, higher-duration assets.”
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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